U.S., Canada and Mexico Reach New Trade Deal

On Sept. 30, 2018, it was announced that the U.S., Canada and Mexico have reach a trilateral agreement as part of the renegotiation of the North American Free Trade Agreement (NAFTA). The new agreement will be preliminary known as the United States-Mexico-Canada Agreement (USMCA).

Several of the key provisions are outlined below.

1. Autos
NAFTA talks were conducted under threat of a steep escalation of tension: imposition of U.S. auto tariffs. The deal struck on Sept. 30 offers a measure of protection for both Canada and Mexico, ensuring neither country will be affected by any auto tariffs unless exports top 2.6 million units annually.

For each, that represents their current exports plus growth of at least 40 percent – enough to mean that if the tariffs are leveled against the rest of the world, they likely wouldn’t hit Canada and Mexico for several years. There’s no guarantee that the Trump administration will impose the tariffs at all, or keep them in place that long.

As expected, the deal calls for cars to have 75 percent of their content originate in the U.S. and Mexico, up from the current 62.5 percent, and for 40 percent of a car to come from workers whose pay averages more than $16 per hour. The rules are a central part of the U.S. strategy to rebalance manufacturing to benefit American workers.

2. Other Tariffs
The deal doesn’t resolve the dispute over U.S. tariffs on steel and aluminum imports from Canada and Mexico – or the retaliatory tariffs that each country placed on them. But going forward, it did give a guarantee that no tariff applied under the same U.S. law could be imposed against Canada or Mexico for at least 60 days. During that period, “the United States and Canada shall seek to negotiate an appropriate outcome based on industry dynamics and historical trading patterns,” the countries agreed.

3. Dispute Panels
NAFTA had three kinds of dispute settlement systems. The new deal will see two remain essentially unchanged, but renamed, according to senior White House officials. State-to-state dispute settlement – formerly in Chapter 20 – is being kept. It has many critics, particularly in the labor community, because panels often get blocked and disputes linger for years.

The old NAFTA’s so-called Chapter 19 dispute-settlement mechanism – which hears bi-national anti-dumping and countervailing duties cases – remains untouched in the new agreement, White House officials said. Canada dug in to save those.

Investor-state dispute settlement, formerly in Chapter 11, will be phased out between the U.S. and Canada but remain in place for certain key sectors – such as oil and gas, infrastructure and telecommunications – between the U.S. and Mexico, according to the White House officials.

4. Dairy
As part of the deal, the U.S. is getting expanded access to Canada’s protected dairy market, long a thorn in the side of trade talks. Canada will eliminate its so-called Class 7 milk pricing system, a senior U.S. administration official told reporters. New measures will prevent Canada’s system from spilling outside its borders, while market access for the U.S. will exceed Canada’s concessions in Trans-Pacific Partnership talks, the U.S. official said. Canada gave up 3.3 percent of its market in those TPP talks, but the U.S. has since quit the deal.

5. No Sunset
The U.S. had demanded a sunset clause that would kill NAFTA after five years unless the countries agreed to extend it. Few ideas upset Canada and Mexico more than that. In the end, the countries agreed to a 16-year term for the deal, with a review to identify and fix problems and a chance of a deal extension after six years. U.S. Trade Representative Robert Lighthizer said in August that the review mechanism is designed to solve problems and prevent them from festering, rather than to terminate the deal.

6. Intellectual Property
The office of the U.S. Trade Representative boasted that the deal would provide “new protections for U.S. intellectual property,” which the U.S. had been seeking. Copyright will, for instance, extend 70 years after an author’s death.

7. Higher Thresholds
Both Canada and Mexico agreed to raise the thresholds at which they apply duties to cross-border purchase, another key U.S. demand. Mexico raised its so-called de minimis level to $100 from $50. Canada raised its to C$150 ($117) for duties, from C$20 earlier, and C$40 for sales taxes.

To read the agreement, click here.